ExpertMedium2 marksMultiple Choice
ACCA · Question 14 · Cost Accounting Techniques
An aerospace manufacturer absorbs overheads based on direct labor hours.
Budgeted overheads: $500,000
Budgeted labor hours: 25,000 hours
Actual overheads incurred: $520,000
Actual labor hours worked: 27,000 hours
What is the under- or over-absorption of overheads for the period?
An aerospace manufacturer absorbs overheads based on direct labor hours.
Budgeted overheads: $500,000
Budgeted labor hours: 25,000 hours
Actual overheads incurred: $520,000
Actual labor hours worked: 27,000 hours
What is the under- or over-absorption of overheads for the period?
Answer options:
A.
$20,000 under-absorbed
B.
$20,000 over-absorbed
C.
$40,000 over-absorbed
D.
$40,000 under-absorbed
How to approach this question
1. Calculate the Overhead Absorption Rate (OAR) = Budgeted Overheads / Budgeted Hours. 2. Calculate Absorbed Overheads = OAR * Actual Hours. 3. Compare Absorbed Overheads to Actual Overheads.
Full Answer
B.$20,000 over-absorbed✓ Correct
OAR = $500,000 / 25,000 hours = $20 per hour.
Overheads absorbed = 27,000 actual hours × $20 = $540,000.
Actual overheads = $520,000.
Since absorbed overheads ($540,000) > actual overheads ($520,000), overheads are over-absorbed by $20,000.
Common mistakes
Comparing budgeted overheads ($500k) to actual overheads ($520k) and concluding $20k under-absorbed.
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